New Deal for Consumers heralds major compliance requirements for digital platforms and retailers
Reforms will elevate consumer protection up the compliance agenda, impose new transparency requirements and potential sanctions, and bring data-as-payment services within the ambit of consumer law The New Deal for Consumers initiative consists of two pieces of legislation. The first creates a right for EU citizens to come together as a class and pursue representative actions against the company for compensation for breach of consumer law. The second updates existing consumer laws by introducing General Data Protection Regulation (GDPR)-style fines and bringing in new obligations in relation to selling via platforms and marketplaces. This second piece of legislation is known as the Omnibus-Directive. The steps now taken by the EU via the Omnibus-Directive will lead to a tightening of EU-wide consumer protection and unfair competition laws, which will also affect traditional online retailers in many respects. As a consequence, the Omnibus Directive will not only affect B2C sellers and major e-commerce platforms or retailers, but absolutely everyone offering anything to consumers online.
The need for change
The EU launched the New Deal for Consumers initiative in 2018 in order to modernise and strengthen the enforcement of EU consumer law. This came in the wake of various scandals including "Dieselgate". The EU’s own comprehensive fitness checks of consumer and marketing law, meanwhile, made it clear that the existing consumer protection laws lacked "teeth", meaning that compliance was low on the corporate agenda. The Commission’s checks also revealed that numerous existing European laws were in desperate need of modernisation to take account of the digitalisation of the economy over the past decades.
So what is in store for platforms and retailers?
The New Deal for Consumers (along with the associated Digital Content Directive and the Sale of Goods Directive, discussed below) has three core elements:
- further and stricter transparency obligations;
- GDPR-style fines for infringements; and
- data as “payment”.
Under the New Deal for Consumers, there will be various new information obligations in relation to e-commerce. For example:
- Reviews: if product reviews are available, the trader must provide information on whether and how it ensured that reviews were actually submitted by consumers who used or purchased the products.
- Price reductions: each time a price reduction is advertised, the previous price (meaning the lowest price offered by the trader during a period of at least 30 days before the price reduction) must be shown in the advert.
- Profiling: if the price displayed to the consumer has been personalised on the basis of automated decision making or the creation of profiles of consumer behaviour, traders are obliged to inform consumers about this fact.
- Ranking: marketplaces (and potentially other traders using ranking mechanisms that apply not just to their own products) will be obliged to publish the main parameters used to determine the ranking of the products, as well as the criteria on the importance given to these parameters. This is essentially a B2C-sequel to the ranking-information obligations under the Platform-to-Business Regulation which became applicable in summer 2020 and contains similar information obligations for platforms in a B2B context.
The New Deal for Consumers also imposes a new sanction regime. This will, in most Member States, lead to more significant penalties including GDPR-style fines for breaches and group actions for compensation. The Omnibus Directive obligates the Member States to implement a sanction regime that includes the possibility of fines. This in itself is new to several Member States, for example in Germany, with a few rare exceptions such consequences are not currently possible. In other Member States, such as the Netherlands, it is more common to impose administrative fines for consumer law infringements. Furthermore, the Omnibus Directive forces Member States to ensure that the maximum possible fine is at least 4% of the annual turnover of the infringing company in that Member State. This will lead to greater harmonisation of the sanctions across the EU and avoid the current situation where some Member States have much harsher penalties for breaches of consumer law than others. The introduction of an EU-wide mechanism for consumers to bring group actions for compensation will also mean that companies can expect to be held accountable for the financial consequences of any lack of compliance. Where large numbers of consumers are affected or the losses are significant, this could be extremely costly. Overall, this is intended to be a significant increase of the deterrent effect of potential sanctions. This will raise consumer protection to a similar level of importance as data protection and antitrust law when it comes to corporate compliance.
Data as “payment”
Although not an official part of the New Deal for Consumers, the Digital Content Directive and the Sale of Goods Directive also have very significant consequences in this area. These two directives create a unified regime for contracts on digital products. They go hand in hand with the Omnibus Directive in various ways, for example in relation to one of the most important innovations: data as “payment”. The three directives together extend consumer protection law to contracts where the consumer, instead of paying with money, provides personal data that is not required for the fulfilment of the contract – in other words, they "pay" with personal data. This business model is incredibly important to the current online ecosystem. Extending some consumer protection laws to these contracts mean that businesses that previously did not need to concern themselves with consumer protection now need to consider the implications of many new rights including cancellation rights and the right of the consumers to have their data returned after they cancel the contract. Such new rights will have many consequences, including for website design and internal processes.
The new requirements of the Omnibus Directive still have to be implemented into national law by the EU Member States. Several have already published proposals for transposition laws which illustrate that in some cases Member States are planning to impose even higher sanctions than those set out by the EU. More proposals will be published during 2021, giving greater clarity on sanctions and the exact nature of the obligations before the new laws come into effect from 28 May 2022.